Learn about the Contrat d’Assurance Vie and Bon de Capitalisation in France, and how these forms of investment can generate tax savings on income and inheritance…

One of the most popular forms of investment for French residents is the Contrat d’Assurance Vie, a life assurance investment bond (an investment with a life assurance company).

The reason that such policies are so popular is because they offer significant inheritance advantages, as well as beneficial tax treatment for any growth and/or income generated.

To benefit from the preferential tax treatment of these policies, the insurance company provides the “wrapper”, but investors are then able to choose the investments which will be held within this, either from a list of funds produced by the insurance company, or, for larger sums (generally €500,000 and above), a discretionary investment manager can be appointed to run a bespoke portfolio.

All French insurance companies also offer access to their Fonds en Euros. This basically means that the insurance company invests as they see fit but, in return, they guarantee that the investment cannot go down in value and must go up by a certain amount each year. At the end of each year they work out how much they have made and distribute investors’ shares of the “profits” as interest. These investments are obliged to be very conservative, due to the level of guarantees offered, and therefore the bulk of the fund is invested in long-dated government securities which are held to maturity. As a result, they are therefore only making about 3 percent a year at present, due to low interest rates.

An alternative to the Contrat d’Assurance Vie is a Bon de Capitalisation, or Capital Redemption Bond.

The basic contract terms are the same for both policies, as is the income and social tax treatment. However, Bons de Capitalisation carry no inheritance advantages and the value of the policy on death is part of the decedent’s estate.

There are two clear advantages of using these policies. Firstly, for wealth tax purposes, the amount that is declared is the initial investment amount. Secondly, a Bon de Capitalisation can be gifted during the holder’s lifetime or left on death, which could be useful if the aim is to pass on a “family portfolio”.

Note: Siddalls are qualified and registered independent financial advisers in France and are not lawyers or accountants. Please remember that the above comments are merely a summary of our understanding of current legislation. This summary cannot hope to cover all the details of French savings and investments and you should always seek appropriate advice before deciding on any changes to your arrangements.